Investment Portfolio, Investing Portfolio

EconomyWatch
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Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.


 

An investment portfolio refers to a collection of investments held by an institution or an individual. This mix of investments may include stocks, bonds, options, futures, gold certificates, currency, real estate or any other instrument that generates returns.

How to Create an Investment Portfolio?

It is critical to have the appropriate mix of assets and securities in your investment portfolio, as this will determine your overall returns and risk exposure.

Set your financial goals: Financial goals would have to be set taking into account several factors, including your present income, an estimate of your future income, the number of years left for your retirement, your financial responsibilities (such as child’s education or aging parents) and the prospects of the economy.

Asset allocation: Any portfolio must include a mix of investments. This is because each financial instrument entails a different combination of risks and rewards. The various financial instruments can be broadly classified into four financial investment vehicles.

Asset Return Risk Cash Investments (like bank accounts Low Low Debt Investments (like bonds) Moderate Moderate Equities (stocks) High High Mutual Funds Low to High Low to High

An investment portfolio should be balanced and spread over the broad investment classes with varying risk and reward levels. Diversifying the investment portfolio helps to minimize risk exposure, while maximizing potential return. Hence, one would need to have a basic knowledge of the various instruments available for investing.

Avoid rebalancing your portfolio regularly: It is not a good idea to rebalance the investment portfolio too often. This is because risks are lower in the longer term and asset values may be volatile in the short term. So it is better to set an annual or long term rebalancing schedule.

Things to Consider while Creating an Investment Portfolio

Here are a few things you need to keep in mind while building your investment portfolio:

  • Take full advantage of your company’s investment plans. This may include 401(k), profit sharing and stock options.

  • Ensure that you are adequately covered against unforeseen losses through insurance.

  • In case you do not have the time to study the various investment vehicles or to stay in touch with changes in regulations and the developments in the economy, consider seeking the services of a financial advisor.

  • A good place to begin for a novice investor is a mutual fund, which pools money from several investors and spreads them over various investment vehicles.

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